Your organization has adopted an agile framework and your sales model has turned from a top-down to a bottoms-up approach, replacing B2B with B2C2B. You sell to real people to reach a company and you create solutions for people with real-life needs in the workplace.
You no longer think of your customers as an abstract notion of a “company”. You communicate with your customers every step of the way, work in sprints, and develop working software. You do all of this to continuously improve, keep up in a fast-paced software industry, improve customer and employee satisfaction, work more efficiently, and meet more realistic financial goals.
You do all of this, but you’re still stuck in an archaic way of budgeting from year to year from the top down. All of your flexibility, transparency, and shorter iterations are expected to somehow fit inside a budgeting model meant for traditional project management, waterfall teams, and top-down approaches to business.
Sound familiar? If so, it might be time to consider transitioning from traditional budgeting techniques to beyond budgeting.
What is beyond budgeting?
[tweetme]Beyond budgeting is the practice of creating shorter rolling budgets and reviewing them at regular intervals.[/tweetme]
A typical approach to beyond budgeting is to create quarterly budgets for five quarters. The budget is then re-assessed at the end of each quarter and you make changes where needed and then add the 5th quarter at the end of each quarter.
[callout class="tip"]SAFe also has some strategies for Lean-Agile Budgets that fit in well with lean and agile project management.[/callout]
The 12 principles of beyond budgeting outlined by the Beyond Budgeting Institute seem to almost echo the agile manifesto. It’s hard not to make the connection that beyond budgeting fits in smoothly with agile project management.
Let’s take this a step further and discuss the reasons why it might actually be hurting you not to adopt it.
1. It doesn’t promote transparency
The agile manifesto promotes customer collaboration over contract negotiation.
Negotiation goes hand in hand with traditional budgeting techniques. People know that a company has the budget already more or less set in stone. It’s a given that the first offer will never be accepted, so both the customer and the company know to go into a negotiation asking for much more than they know they’ll get. Both sides know how to play the game and they go in prepared.
This way of working contradicts what the agile movement promotes. Agile seeks collaboration and transparent communication from the beginning.
[callout class="user"]Creating budgets for shorter time periods and reviewing them at regular intervals, just as is done in agile project management, allows companies to be clear with their customers from the beginning about project costs.[/callout]
It also promotes healthier communication between the management and the development teams.
2. It is a top-down approach
Traditional budgeting also focuses on more of a top-down approach where executives and management create and negotiate the yearly budgets for their departments. This means that teams need to stick within that budget. The processes and the rigid tools used come before the team members and customers. Companies are forcing their budgeting to fit in with their outdated tools instead of finding a flexible solution that works with Lean-Agile budgets.
This same way of thinking works for business teams as well as development. It’s becoming more and more popular for B2B companies, especially in the tech industry, to adopt a B2C2B sales model.
[callout class="tip"]We focus on reaching the team member by creating products that will make their life better and allow the idea to trickle up to the decision makers, instead of the other way around.[/callout]
Traditional budgeting doesn’t fit into this bottoms-up movement that many companies are experiencing, where budgets are dictated from the top-down with little collaboration from the teams and not reviewed very often.
3. It’s not flexible
Traditional budgeting techniques are inflexible. This is where beyond budgeting can be really beneficial to companies that have already adopted working in agile.
[tweetme]Your budget should mirror the way you work.[/tweetme]
If you don’t have a roadmap set in stone for your development for the entire year, then you also shouldn’t have a budget that is.
This doesn’t mean, of course, that you don’t have a vision for the future or an idea of where you want to go.
[callout class="user"]Beyond budgeting doesn’t throw all budgeting out the window, it just leaves more room for flexibility and improvement at shorter intervals just as working in agile doesn’t mean you don’t have a clear vision.[/callout]
If your teams are working in short sprints and constantly reviewing their work to continuously improve and react quicker to your customers’ or industry’s needs and demands, then the budgeting within the organization needs to mirror that to match your strategic goals with reality.
4. It doesn’t promote continuous improvement
Another goal of working in agile is to continuously improve on all levels, from continuously improving the team and the way we work to improving the product and the business. There is never an end goal, just always getting incrementally better. This is achieved by setting smaller goals with shorter time frames and reflecting how processes can be improved at the end of each step.
If anything, continuously improving the budget to be more accurate and more realistic should be a top priority for any organization.
[tweetme]Re-visiting the budget more often increases the likelihood of projects finishing within budget.[/tweetme]
Budgeting in a way that directly contradicts the lean and agile framework simply doesn’t make sense. More and more organizations are adopting a new way of working, which is more efficient, sustainable, and directly affects employee and customer satisfaction. It’s time for budgeting to catch up and jump on that bandwagon.